The opinion of the court was delivered by: JAMES ZAGEL, District Judge

MEMORANDUM OPINION AND ORDER

I. Factual Background

Plaintiff Michael Reese Hospital and Medical Center ("Michael Reese")
was a participating hospital provider under the Medicare program and as
such was entitled to appropriate Medicare reimbursements. The amount of
Michael Reese's reimbursements was calculated by its fiscal intermediary,
Health Care Services Corporation ("HCSC"). At the end of each fiscal
year, HCSC received a report of costs from Michael Reese, performed an
audit of that report, and determined the appropriate amount of
reimbursement owed.

Due to a change in Medicare's reimbursement policy, HCSC issued a
Notices of Reopening and Amended Notices of Program Reimbursement to
Michael Reese for the years 1986-1991. Michael Reese disagreed with
HCSC's findings and promptly requested a hearing before the Provider
Reimbursement Review Board ("PRRB"). On December 16, 1994, HCSC, HCSC's
contractor Blue Cross and Blue Shield Association ("Blue Cross"), Michael
Reese Hospital's subsequent owner Columbia Hospital Corporation of
America ("CHA"), and Michael Reese's agent Strategic Reimbursement Inc. ("SRI") agreed to meet and
discuss settlement. During this meeting, the parties were able to reach
an Administrative Resolution, which resolved the reimbursement dispute.

During the following months, HCSC moved toward implementing the
Administrative Resolution. On March 24, 1995, HCSC's Manager of Audit
Reimbursement sent a letter to CHA and SRI identifying amendments to the
disputed costs report and indicating that the HCSC would make the agreed
upon recalculations, and on November 1, 1995, HCSC issued the revised
reimbursement calculations for the base year and implicitly all
subsequent years. Michael Reese found these revised calculations to be
consistent with the Administrative Resolution and allowed the appeal
before the PRRB to lapse.

Michael Reese now claims that HCSC and its subsequent intermediary,
AdminaStar Federal Inc. ("AdminaStar"), failed to properly implement the
Administrative Resolution. Even though HCSC had agreed to reopen and
adjust the cost reports, it never actually did so. On June 8, 1998,
Michael Reese first requested that its cost reports be reopened and
revised to comply with the Administrative Resolution. Michael Reese made
two further requests in 1999 and 2000. Finally, in August 2001,
AdminaStar responded to Michael Reese in a letter stating that AdminaStar
would not revise the cost reports because it did not think the
Administrative Resolution applied to the years 1986-1991. Michael Reese
then requested that the Centers for Medicare and Medicaid Services
("CMS"), the entity responsible for determining the overall reimbursement
to health services providers, intervene in the matter. In a letter dated
July 7, 2003, CMS stated that it agreed with AdminaStar's denial and that
it would not order AdminaStar to reopen the cost reports. In response, Michael Reese commenced this action on August 2, 2003
seeking enforcement of the Administrative Resolution. In its three-count
Complaint, Michael Reese bases jurisdiction on the Medicare Act and the
Administrative Procedure Act ("APA"), on diversity of the parties, and on
the Mandamus Statute. Defendant now moves to dismiss Michael Reese's
claims for lack of subject matter jurisdiction and for failure to state
a claim upon which relief may be granted.

II. Analysis

A. Count I

In Count I of its Complaint, Michael Reese alleges that it has been
subject to a final decision by the Secretary and is entitled to judicial
review by the Medicare Act and the APA. Under the Medicare Act, providers
who disagree with the reimbursement calculations made by intermediaries
can seek review by the PRRB, which is empowered to affirm, modify, or
reverse the intermediaries decision. 42 U.S.C. § 1395oo(a)-1395oo(d).
If the provider is still dissatisfied with the final decision of the PRRB
or of any reversal, affirmation, or modification made by the Secretary,
it may seek judicial review. 42 U.S.C. § 1395oo(f)(1).

Michael Reese claims it exhausted this process with respect to its
disputed reimbursement for the years 1985-1991. Michael Reese disagreed
with HCSC's reimbursement calculation, sought review before the PRRB, and
came to an Administrative Resolution on the amount in question. After
reaching the Administrative Resolution, Michael Reese allowed its appeal
before the PRRB to lapse because, in its view, the matter had been
resolved, Michael Reese believed HCSC would abide by their agreement,
open the cost reports, and change the reimbursement amounts. This belief was furthered by a letter sent on November 1,
1995 by HCSC indicating that it was in the process of reopening and
readjusting the reimbursement.

For reasons which were probably unrelated to Michael Reese, HCSC did
not implement the Administrative Resolution. In the years between 1998
and 2001, Michael Reese sought implementation of the Administrative
Resolution first from HCSC and then from its replacement AdminaStar.*fn1
No response was made until 2001 when AdminaStar stated it would not
reopen the cost reports because it did not believe the Administrative
Resolution applied to the years 1986-1991. Michael Reese appealed to CMS
who affirmed AdminaStar's refusal to reopen and adjust the cost reports.
Michael Reese claims that CMS's refusal was a final agency action and
triggered Michael Reese's right to judicial review under §
1395oo(f)(1) and the APA.

The Defendant disagrees arguing instead that CMS's response was not a
final agency action and that Michael Reese had failed to exhaust its
administrative remedies. Despite notices sent out by the PRRB in 1996,
Michael Reese did not file its position papers causing its appeal to
lapse. The Defendant argues that a diligent provider would have become
concerned about the HCSC's failure to implement the Administrative
Resolution by mid-1996, which was nearly 114 years after the parties
reached their agreement and six months after their last communication,
and would not have allowed its appeal to lapse.

Michael Reese claims this is a "red herring" because the PRRB, by its
own admission, does not have the authority to enforce Administrative
Resolutions. See Home Care PRN, et al. V. BCBS Associated Hospital
Services, PRRB Decision 2004D-1, Oct. 14, 2003. Because no such authority is vested in the PRRB, Michael Reese argues that the
PRRB did not offer a viable administrative remedy. However, this is not
entirely the case. While the PRRB did not have the power to enforce the
Administrative Resolution, it did have the power to hear the dispute,
independently decide the amount of reimbursement owed, and require the
intermediary to reopen and adjust the cost reports in accordance with its
decision. This may not have been the settlement enforcement that Michael
Reese was looking for, but it was a remedy nonetheless.

Michael Reese's argument that it exhausted the review process after
coming to the Administrative Resolution does make a certain amount of
sense when viewed in terms of American law. Under the American judicial
system, when parties involved in litigation reach a settlement agreement,
the original suit is terminated. If one of the parties breaches the
agreement, the aggrieved party then brings a new and separate enforcement
action. This, however, is not the system of dispute resolution
established in the Medicare Act by Congress. Under the Medicare Act, an
Administrative Resolution does not terminate the PRRB's proceedings.
Michael Reese's PRRB appeal remained active for over a year after the
parties had reached the Administrative Resolution and only lapsed because
Michael Reese allowed it to do so. If Michael Reese's appeal had
continued, the PRRB would have discarded the terms of the Administrative
Resolution and would have made its own findings. This indicates that an
Administrative Resolution carries with it neither the finality nor
authority of a typical settlement agreement.

In § 1395oo(f)(1), Congress laid out specific administrative
channels a dissatisfied provider must go through before that provider is
entitled to judicial review. The statute clearly states that an aggrieved
provider must take its case to the PRRB or be subject to a final action
by the Secretary (or CSM) before it is entitled to judicial review. It
is not enough for the parties to reach an Administrative Resolution. An
Administrative Resolution does not carry with it the same weight and
finality as a PRRB decision. Additionally, CMS's affirmation of
AdminaStar's refusal to reopen Michael Reese's cost reports and implement
the Administrative Resolution was not itself sufficient to constitute a
final agency action.*fn2

This may not seem like the "fairest" administrative process when
compared to the general American legal system, but it is the process
provided by Congress. The Medicare program may benefit from a change that
would provide the PRRB with authority to enforce Administrative
Resolutions or that would provide for judicial review for cases like this
one. However, that is not for me to decide. Since Michael Reese did not
exhaust its administrative remedies and did not receive a final agency
action, this courts lacks subject matter jurisdiction over this case.

B. Count II

As a preliminary matter, I must determine whether this case arises
under the Medicare Act's provision for reviewing cost reimbursements.
Michael Reese argues it does not. Instead, Michael Reese claims this case
is simply a suit over the Secretary and AdminaStar's failure to abide by
the Administrative Resolution, which, in Michael Reese's opinion, should
be treated like any other settlement agreement. However, the alleged
violation of the parties' Administrative Resolution must be viewed in its
factual context. As seen above, the Administrative Resolution was born
out of a dispute between Michael Reese and the Secretary's intermediary,
HCSC, over Medicare reimbursements. Michael Reese disagreed with the reimbursement calculated by HCSC and took advantage of the procedures
provide for it in the Medicare Act by seeking review before the PRRB. At
its heart, this is a dispute over Medicare reimbursements.

Since this case arises out of reimbursement under the Medicare Act,
title 42 U.S.C. § 405(h) is applicable. Section 405(h), which has
been incorporated into the Medicare Act, states that "no finding of fact
or decision of the Secretary shall be reviewed by any person, tribunal,
or government agency except as herein provided. No actions to recover on
claims arising from the Medicare laws can be brought under § 1331 of
Title 28, United States Code," Essentially, § 405(h) limits aggrieved
providers to remedies provided for in the Medicare Act itself.

In Count II of its Complaint, Michael Reese attempts to assert
jurisdiction based on diversity of the parties; Michael Reese is an
Illinois Corporation and AdminaStar is an Indiana corporation. Diversity
jurisdiction, however, is forestalled by § 405(h), The Seventh
Circuit addressed this issue in Bodimetric Health Serv. v. Aetna Life
& Casualty, 903 F.2d 480, 487 (7th Cir. 1990) and stated that
suits against fiscal intermediaries were governed by § 405(h) because
the real party at interest was the Secretary. Id. The Court held
that plaintiffs could not avoid § 405(h)'s jurisdictional bar merely
by styling its compliant as a breach of contractual relationship.
Id.

Michael Reese attempts to avoid the Seventh Circuit's decision in
Bodimetric by recouching its contract claims in terms of gross
negligence, a claim for which the Secretary is not required to indemnify
an intermediary. However, Bodimeteric's view of § 405(h)'s
bar against diversity jurisdiction goes beyond actions in which the
Secretary is required to indemnify its intermediaries. In
Bodimetric, the Court looked closely at the legislative history
of § 405(h) to Medicare system that has the power to enforce the agreements. From the
way the system is set up, it is possible that Administrative Resolutions
are suggestions to be followed and not agreement binding on both
parties. In any case, I find that Michael Reese is not entitled
to jurisdiction under the Mandamus Statute.

Defendants' Motion to Dismiss is GRANTED on jurisdictional grounds.

Our website includes the main text of the court's opinion but does not include the
docket number, case citation or footnotes. Upon purchase, docket numbers and/or
citations allow you to research a case further or to use a case in a legal proceeding.
Footnotes (if any) include details of the court's decision.

Buy This Entire Record For
$7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.